The Food and Drug Administration announced this morning tough new
regulations on the entire U.S. tobacco industry, including the segment
that makes and markets premium, handmade cigars.
Despite previous hopes, the premium cigar industry did not get the
exemption it—and thousands of cigar lovers across the United States—had
lobbied for. The FDA chose Option One, the tougher of the two routes,
casting aside any exemption for premium cigars.
If left unchecked, the rulings issued today would take effect in 90
days, or August 8, 2016. The premium cigar industry is preparing a legal
response to challenge the FDA ruling.

The ruling includes:

• Establishing a federally mandated minimum of 18 years for the
purchase of any tobacco product, including sales made online, and age
verification made by photo ID.

• The banning of free tobacco samples.

• The requirement of products released after February 15, 2007 to be verified by the FDA before going to market.
In a conference call to the media early this afternoon, Mitch Zeller,
J.D., Director, Center for Tobacco Products for the FDA, said the FDA
intended to also target flavored cigars, including flavored premium
cigars.

The FDA has said this new product verification will be done "under
staggered timelines, the FDA expects that manufacturers will continue
selling their products for up to two years while they submit—and an
additional year while the FDA reviews—a new tobacco product application.
The FDA will issue an order granting marketing authorization where
appropriate; otherwise, the product will face FDA enforcement."

This last item has been the one most feared by premium cigarmakers.
In an industry where new products are an important part of the market,
product verification and government approval prior to release would
radically slow the process of getting new product to store shelves, as
well as adding to the cost of business.

The FDA confirmed that all required applications could “cost hundreds
of thousands of dollars” per application. "It's an average and there's a
range," said a representative from the FDA during the conference call.

This ruling comes a little more than two months prior to the
industry's biggest trade show, the International Premium Cigar &
Pipe Retailers trade show, taking place in Las Vegas, in which cigar
samples are an integral part.
Premium, handmade cigars account for roughly 315 million units a year
in the United States, a mere fraction of the nearly 12 billion cigars
sold annually in America, the vast majority of which are made by
machine.

"We are deeply disappointed that the Food and Drug Administration has
decided to regulate premium cigars," said Eric and Bobby Newman, owners
of the J.C. Newman Cigar Co. of Tampa, Florida, in a joint statement.
"The premium cigar industry is made up of dozens of small, family-owned
cigarmakers, like us, along with thousands of small, independent
specialty cigar stores across the country. The cost and burdens of
onerous regulations threaten the entire industry. We are closely
studying the 499 pages of regulations that the FDA issued this morning
and are hopeful that we can find a way to save our historic cigar
factory in Tampa."

"The FDA's regulation of premium cigars, if left unchecked, would
have a devastating impact on retailers and manufacturers alike," said
Mark Pursell, CEO of the International Premium Cigar & Pipe
Retailers Association. "Fortunately, the industry's legislative strategy
continues to be implemented, including language recently adopted by the Appropriations Agricultural Subcommittee
disallowing any funding of FDA regulation of premium cigars and
negating the arbitrary predicate date of February 2007, after which any
tobacco product would be considered new, and have to go through an
expensive and time consuming compliance process. Bills H.R. 662 and S.
441, exempting premium cigars and pipe tobacco, continue to gain
co-sponsors as we pursue a legislative solution to unneeded and harmful
government intrusion."

Said Hans-Kristian Hoejsgaard, chief executive officer of Oettinger
Davidoff AG, owner of Davidoff and other cigar brands: "We are very
disappointed to note that the FDA seems to have ignored the compelling
logic to treat premium cigars differently from cigarettes, and to also
have further harmed the premium cigar category by requiring a predicate
date that goes back over 10 years."
While the FDA's ruling is certainly harsh on the industry, it's not
clear if this will become law. And the Cigar Rights of America is
preparing to fight against the FDA.

"We're going to be totally concentrating our efforts on a two-front
war right now. One is advancing the legislation that was adopted by the
House Appropriations Committee, which calls for an exemption on premium
and large cigars, and getting that through the full House of
Representatives and adopted by the Senate, which probably won't happen
until after this year," said J. Glynn Loope, executive director of the
Cigar Rights of America. "Secondly, we're going to be evaluating
immediately all of our legal options for litigation. We spent a lot of
the last six weeks interviewing law firms for just such a contingency."